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Foreign investors to be exempt from minimum capital requirement
The final draft of the long-awaited Startup Proclamation proposes to grant the government stakes of up to 30 percent in startup businesses set up through facilitated grants. The Ethiopian Investment Holding (EIH) is designated to hold the 30 percent stake on behalf of the government.
The bill, which has been anticipated by entrepreneurs and the business community for years, was submitted for public consultations on November 23, 2024, after several years in the draft stage.
Inside sources say the bill was subject to constant changes, with some of its provisions stirring controversy among people involved with startups. As several ministries and agencies such as the Ethiopian Investment Commission are stakeholders, there was also an issue of institutional ownership holding back finalization.
The article pertaining to EIH was incorporated in the end stages of the drafting process, according to the sources.
The bill proposes to establish a Startup Grant Program under the Ministry of Innovation and Technology to support designated startup businesses. Parliament will be responsible for allocating an annual budget towards the grant, which will also incorporate contributions from development partners and other sources approved by the Ministry of Finance.
The grant is meant to cover costs associated with the establishment, implementation, development, and operation of recipient startups, according to the bill.
The Innovation Ministry will be in charge of distributing the grant directly to recipients, although the bill proposes that ‘Designated Startup Ecosystem Builders’ may be able to take part in distribution for a management fee. These builders are entities that “actively contribute to the establishment, development, and sustainability of startups.”
Candidates include everything from Incubators and co-working spaces to TVET institutes and NGOs.
A business must be younger than five years, own the product or service it provides, have at least 25 percent of its capital held by the founder, and a workforce not exceeding a size to be determined by the Ministry in order to be considered a startup.
The bill also proposes establishment of the ‘Startup Fund of Funds’, a share company owned by the government and private sector, with the possible inclusion of foreign investors. EIH will be able to hold up to a 30 percent stake in the company on behalf of the government.
“The purpose of the Fund of Funds shall be to invest its capital on other funds that invest in startups,” reads the bill.
The startup bill also grants ample provisions for foreign investors participating in Ethiopia’s startup ecosystem. The bill exempts FDI aimed at startups from the USD 150,000 minimum capital required to invest in Ethiopia, which is stipulated in other legislation.
Foreign startups will not be entitled to access the fund grant program, according to the draft.
“The final bill disclosed lately is very different from the previous versions. This final draft is very good, it incorporated several points that have been hampering the startup ecosystem in Ethiopia. The involvement of EIH is also good. Because EIH has good financial resources, and is also led by professional experts that look for impactful and prospective startups, it can lead startups to successful businesses. More ideas and inputs also will be included during the public consultation and I hope a good proclamation might be put into action soon. The bill is long overdue and there are several problems in the existing startup ecosystem, which remains fragmented,” said a startup expert who worked at several startup incubation centers mushrooming in Addis Ababa. The expert is also closely involved in the drafting process.
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